The risks of self-employment: the good, the bad, and the ugly

Self-employment is an alluring prospect. It’s a chance to live your life on your terms, to achieve more fulfilment and meaning from your career, and to earn enough money to create the lifestyle you desire. 

However, not everyone manages to create the self-employed lifestyle they were hoping for. Many self-employed professionals are trapped in a situation where they’re overworked, underpaid, unhappy – or even all three!

In this article, learn the promises and pitfalls of consulting and self-employment so you can design a business and lifestyle to support your goals. 

Good and bad reasons to choose self-employment

You might want to become a self-employed professional (SEP) for many reasons, but getting clear on them and checking you’re motivated by the right things will make a massive difference to your journey.

Before you get started, you need to work out:

• What kind of life do you want to have? - Are you starting a lifestyle business with minimal time investment or replacing your 9/5 gig? Do you want to travel? Do you want to go into an office? Do you want to do more writing, thinking and planning or spend more face-to-face time with clients?

• Why will self-employment bring this to you? - What about self-employment do you think will contribute to your ideal life?

• What are you hoping to feel and achieve by becoming self-employed? - Unless you're clear on your criteria, making choices that align with them is difficult.

Good reasons to become self-employed

There are many reasons why someone may want to start their own consulting or professional service business; some of the most common reasons include:

• Flexibility and autonomy: Starting your own business gives you more control over your time and schedule and the ability to set your goals and priorities.

• Financial independence: Running a successful business can provide significant financial rewards, allowing you to achieve financial freedom and stability.

• Professional growth and development: Starting your own business requires new challenges and responsibilities, leading to growth and development.

• Sense of accomplishment: Starting and running your own business can be a rewarding and fulfilling experience, filled with achievement and pride.

• Helping others: Consulting or professional service businesses often involve assisting others to solve problems or achieve their goals, which can be an enriching experience.

• Opportunity to be creative: Your business allows you to be creative and innovative, developing and implementing new ideas.

• Opportunity to make a difference: Consulting or professional service businesses can have a positive impact on your community, industry, or society as a whole.

• Independence: Being your boss allows you to make your own decisions.

• Potential for unlimited growth: The earning potential in a consulting or professional service business is often tied to the success and expansion of the business, which can be unlimited.

Bad reasons to become self-employed

But some reasons aren’t quite so good. If you’re motivated by the wrong things, you’re setting yourself up to fail. Make sure you aren’t considering self-employment because:

• You lack expertise or knowledge: Trying to cover up a lack of performance or experience by starting a consulting business is a recipe for failure.

• You don’t like people - All SEPs are sales-people. Most of your job will be meeting people, making sales, managing clients and interacting with stakeholders. This is the wrong game for you if you’re trying to escape interaction with people.

• You’re over it - Going freelancing because you have lost passion or genuine interest in the industry you’re working in is a fast track to demotivation and burnout.

• You want to get rich quickly - Starting a business because you think you’ll make more money immediately is a terrible idea. Most new ventures take a while to get off the ground, and if you’re not prepared to take risks and absorb a few dicey months, you’ll be disappointed.

• You want to reduce your workload - Starting a business to avoid the 9-5 schedule without considering the workload can lead to an unbalanced work-life schedule. The early days of a new business require a lot of legwork to get off the ground, and while you’ll have lots of flexibility and opportunity to set your timing eventually, you’ve got a lot of work to get through first.

• You’ve got an untested idea - Starting a business without testing interest in your services is terrible. You're in trouble if you don’t understand your market, the competition, and the demand for the services or products.

Learning to balance freedom, stress and risk

Nailing a self-employed life requires balancing three key things: freedom, stress and risk. The most successful SEPs maximise their freedom, minimise stress, and mitigate risks.

👍🏼 The best things about self-employed life

• Freedom to choose your hours

• Freedom from organisational overhead and corporate bullsh*t

• Freedom to say no to work you don’t like

• Freedom to work on projects that excite you

• Freedom for unlimited earnings

👎🏻 The worst things about self-employed life

• Stress caused by financial insecurity

• Stress caused by lack of support or understanding from family and friends

• The stress of admin and paperwork

• Stress caused by self-doubt and insecurity

• Stress caused by overwork or poor work/life balance

🤢 The ugly things about self-employed life

• The risk that you end up with a worse work-life balance than before

• The risk that you might fail

• The risk that you aren’t as good as you think you are

• The risk that you ARE good, but you suck at getting clients.

How to find the sweet spot and make it all work out

There are three crucial components to achieving self-employed success:

1. Flexibility – choosing what you do, who you do it with, where, and on what terms.

2. Fulfilment – creating meaning, purpose and impact through the contribution of your work

3. Financial Rewards – enjoying the financial pay-off for the risks and responsibilities you’ve taken on.

Get all three of these in order, and you’ll be able to ward off burnout, cynicism and poverty.

Flexibility: Avoiding burnout

Self-employment offers a shot at freedom, autonomy and independence. You have unlimited potential for professional development and growth and absolute responsibility for making that happen.

When you design your business, beginning how you mean to continue is important. Many consultants are so nervous about being unable to attract clients that they take on more than they can handle and make compromises they’d rather not have to. However, you risk getting burnt out if you don’t draw some boundaries early.

Before you start your SEP journey, ask yourself a few critical questions so that you can build your business with flexibility in mind:

• What aspirations do you have for your life that haven’t to do with work?

• What kind of work/life balance will you need to achieve these?

• What kind of people do you most like working with?

• How do you most prefer to work – location, time, relationships, etc.?

• What boundaries will you need to draw around your time, energy and personal life?

Fulfilment: Upholding your ethics

Two of the biggest frustrations experienced by employed professionals are the compromises they make in their values and the deficit they see in their impact.

They do great work, only to be hamstrung by corporate constraints, bureaucracy and delays.

Self-employment offers a career pathway outside those constraints, where you can have the impact you’ve been craving for your entire career.

However, this won’t happen by accident. Those constraints on progress and impact are there for a reason, and unless you’re clear on the difference you want to make in the world, you’ll find yourself in the same trap.

Even the most well-intentioned SEPs can find themselves working with clients they don’t like or doing work, they don’t believe in.

In the early days, when you’re designing your business, consider some of the following:

• What are your most important values?

• What does success look like to you?

• What kind of work are you not willing to do?

• What are your criteria for clients and projects?

Finances: Don’t take a penalty

So many consultants are struggling with cash flow – despite entering self-employment hoping to bring more home than they were in their jobs.

This is usually a result of inaccurate pricing calculations, fear and under-charging. When you’re used to a salary, you compare your chargeable hourly rate to that rather than the time you spend on your business and the value you bring to clients.

Some people are so grateful to have any work and to achieve the kind of freedom and fulfilment they’ve been craving that they feel uncomfortable charging appropriate rates.

But values are not incompatible with value, and if you don’t capture enough of that value for yourself, you’re choosing to take a purpose penalty – when it isn’t needed.

Here is some helpful advice for determining how you price your services:

• Calculate the value of your work to clients (How much time, money or energy will this save my client? What is the value of my long-term expertise to their business?)

• Consider the total amount of time you spend in your business (Chargeable time is rarely more than 50%. This necessitates an immediate doubling to capture your target hourly or daily rate)

• Compare your rates to your target competitors (What are people paying for this kind of service? Remember to consider all their add-ons and extra staff in this number, and add it to your business-of-one rate.)

In summary, here’s how to balance the risks and rewards

• Self-employment offers a more accessible, more fulfilling life, rewarded by financial independence.

• Not all motivations are created equal – consider yours carefully

• There are a variety of different modes you can choose to work in. This course focuses on Self-Employed Professionals (SEPs)

• When designing your business, consider three key ingredients early on:

  • Flexibility

  • Fulfilment

  • Finances

• Ask important questions to ensure you don’t neglect one of these critical ingredients.

Are you interested in learning how YOU can master self-employed life and create the business of your dreams?

Check out the Consultants of Choice readiness assessment to discover your readiness.